• 24 Feb 2014 at 5:12 PM

The Bitcoin Bugle: Dark Days

The ranks of the Bitcoin Foundation’s board are thinning at a less-than-ideal time for the fake-ish currency, as the CEO of Mt. Gox plans to spend a little more time dealing with his own exchange’s problems.

Mark Karpeles, chief executive of Mt. Gox, the embattled Toyko-based bitcoin exchange, resigned on Sunday from the board of the Bitcoin Foundation, in the latest blow to the digital currency….

Following the halting, the foundation’s chief scientist Gavin Andresen defended the currency and criticized Mt. Gox, saying the problem was with exchange, not Bitcoin.

“The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified,” Andresen said in a statement on the Foundation’s blog on February 10….

Charles Shrem, another prominent member of the Bitcoin Foundation, resigned earlier this year after being arrested in connection with an alleged drug scheme involving his bitcoin currency exchange.

Indeed, things are not going terribly well for the cryptocurrency, which can no longer even be used for the thing that was once its bread-and-butter.

Sean Green runs Pacific Northwest Medical, with three medical marijuana dispensaries in Washington state, and when he first heard of bitcoin this year, he thought it could be at least a partial solution to his problems. Mr. Green had gone through four bank accounts in 2013, and was dumped by his credit-card company. That last took away a third of his business overnight. Hoping to get back a big chunk of his business, he began accepting bitcoin for purchases in February. But he quickly ran into the same problem that he had with the banks and credit-card companies: Coinbase, where he had set up his wallet, shut his account down when it discovered the nature of his business….

“I accomplished my goal,” he told us, “which was proofing a new system. And it didn’t work….”

In Colorado, the local pot industry looked into the digital currency, and rejected it as an alternative. “Much as we need a solution,” said Mike Elliott, the executive director of the Medical Marijuana Industry Group. “It wasn’t very suitable to us.”

And what of those fractions of a bitcoin you “mined” with 600 quad-core servers over the past year? Well, if they weren’t stolen via computer virus, you might want to hold off using it to invest in a certain hedge fund.

The chief executive is the aforementioned Obawtaye Folayan whose days patrolling school hallways and issuing detentions are long past. The site says he personally oversees international assets worth “$4.4 billion.” Despite living in New Jersey, Folayan has never felt the need to obtain any securities industry licenses or register as an investment advisor….

he company’s headquarters is in a virtual office complex in Mt. Laurel, New Jersey. It says it has been doing business since 1999 but its bare bones filings indicates it was organized in 2012.

A little additional digging turns up some very troubling things about Obawtaye Folayan. In October 2012 he pled guilty to simple assault; the New Jersey Board of Education stripped him of his teaching certificates in September. The idea of his considerable wealth is unlikely: He and his wife Malika–they appear to now live apart, according to a databases examined by the Southern Investigative Reporting Foundation–have nine judgements between them for unpaid consumer debt and last year lost a Pompano Beach, Florida property to foreclosure.

Having a comically ill-conceived website is not, of course, a crime. Where things get interesting is sussing out whatever it is a pair of companies Folayan Financial owns, New York Stock Options and money manager NYSOHedge, are really up to.

Instead, perhaps, invest in Facebook stock, which is basically the same thing as a bitcoin, or something.

With its extraordinary swoop on WhatsApp last week, Facebook proved its stock is not so different from the crypto-currency of the moment, Bitcoin. They can both be used for certain, specific purposes. Neither is backed by a government. Both depend on vast networks of individuals. And their worth reflects demand, which is based on murky fundamentals….

Unlike United States dollars, neither Facebook shares nor Bitcoins are an official form of legal tender. But some people are willing to accept them as payment. A prominent example is WhatsApp’s founders and financial backers, who happily exchanged their stakes in the text-messaging start-up for Facebook stock worth $15 billion. Yet Mark Zuckerberg, Facebook’s boss, would have struggled to purchase a coffee with his shares at the German bakery where he and WhatsApp’s chief executive, Jan Koum, appear to have hatched the deal.

Is it any wonder, then, that people who deal in really real money aren’t especially worried about losing their houses?

Visa Inc. and MasterCard Inc., which processed $7.4 trillion in purchases last year, are among leading payments networks that devote thousands of words in filings to every perceived threat to their business. “Bitcoin” isn’t one of them.

“I’m a bit skeptical,” said Discover Financial Services Chief Executive Officer David Nelms, who runs the fourth-biggest U.S. network after Visa, MasterCard and American Express Co. Other things pose “a lot more potential threats or opportunities than Bitcoin,” he said….

“Protection and trust are crucial to us and our card members and merchants,” Dan Schulman, president for enterprise growth at American Express and former CEO of Priceline.com Inc., said in an interview at the lender’s New York headquarters. “We don’t believe that is offered by crypto-currencies today.”

But, if you’re still interested, head on down to your nearest college town, be it Austin—where, incidentally, bitcoin should fit right in—or to State College, Pa., to get your fix.

To that end, Penn State University Bitcoin Club has been created by six ambitious young students with a strong positive vision for the future of bitcoin.

The club was co-founded by Patrick Cines and Ryan McCabe, both investors in bitcoin and litecoin, and who met on reddit….

“I think that, in the future, bitcoin will be further integrated into our society. It is only inevitable that we have a global currency to advance a continuing globalized economy,” said Cines.

Mt. Gox’s CEO resigns from Bitcoin Foundation [Reuters]
BitBeat: Bitcoin and Pot Have a Bad Trip [WSJ MoneyBeat blog]
Mining Experiment: Running 600 Servers for a Year Yields 0.4 Bitcoin [Data Center Knowledge]
Cybercriminals Use ‘Pony’ Botnet to Steal Bitcoins, Digital Currencies [NBC News]
Hedge Fund Accepts Investments In Bitcoin [FINalternatives]
How To Effortlessly Earn A Riskless 90% On Your Bitcoins Through The Magic of Binary Options Trading, Or, The Nigerian Email Con Comes To Wall Street [Southern Investigative Reporting Foundation]
Facebook Stock Not So Different Than Bitcoin [DealBook]
Bitcoin Seen as Little Threat to Payment Firms [Bloomberg]
First Bitcoin ATM Opens Today in Texas [Bloomberg TV]
Penn State Students Launch Bitcoin Club with Grand Ambitions [CoinDesk]

4 comments (hidden to protect delicate sensibilities)
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Comments (4)

  1. Posted by Guest | February 24, 2014 at 5:29 PM

    Resigned leaving no forwarding address, I'll bet. When you're handling alleged drug dealing and money laundering money, you probably don't want to be hanging out at a known address when you block access to that money.

  2. Posted by Guest | February 24, 2014 at 10:49 PM

    Shaz, doubling up the links and tags isn't going to get you back in Bess's good graces after you missed OB again

  3. Posted by BitCoinJunkie | February 25, 2014 at 8:11 AM

    "their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified"

    Stealing someone's wallet is a "technical detail"… Gotta love those guys !

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